I recently heard somebody quip that the economy depends upon economists as much as the weather depends upon weather forecasters. It is amusing, but it highlights an interesting sentiment which has grown towards economists, and not simple the animosity, which, given the state of the world, is surprisingly restrained.
The sentiment is a more fundamental one, and it is that of passivity. It encapsulates the creeping myth that the economy is something like the weather, that it is a force beyond human control, and that states are like the mad, evil scientist trying to develop his weather-controller.
This sentiment hasn’t come about recently: economists have been arguing for this idea since Adam Smith’s Wealth of Nations. Proponents have posited economics as a science, subject to Newtonian-like laws of physics allowing economists conveniently to cut ties with the encumbering moral and political conundrums to which monetary policy was held accountable while it was still in the hands of political philosophers.
Open any mainstream economics textbooks, and you’ll find a history of money similar to that proposed in by Smith in 1776: “Money emerged to replace onerous and complicated systems of bartering”. Because of the inefficiency associated with this society of barter, people chose to exchange some rare tertiary commodity of discrete value in exchange for their goods and called it money. From this developed banks, and from there our current credit/debt-based economy.
The only problem with this version of history is that there isn’t an iota of evidence that it ever happened. In fact, historians and anthropologists have long since dismissed it as fantasy. Simply imagining a world such as ours without money, as economists beseech us to do, doesn’t given an accurate description of how societies functioned before money – they were, necessarily, radically different.
Nearly all historical evidence points to the complete reverse. In the beginning, there were credit-based economies that emerged from intricate notions of debts to neighbours, friends, family, and tribe etc. Only from these premises were coins and cash introduced formally. Bartering, as we understand it, is only known to have occurred when a monetary system has developed and people suddenly, for whatever reason, find themselves without any coins.
In other words, bartering occurs when people are already familiar with systems of currency and credit. This was known by historians and anthropologists at the beginning of the twentieth century and has not been refuted by economists who still adhere to this myth; it has simply been ignored as inconvenient.
Why? Because this story is not only the foundation of economics as a field of study, but it is a premise central to current economic and political debate – and, from a research point of view, it is where all the funding is.
When Smith published his book, he was trying to establish economics as a field of study and, to do so, he argued, just like Newton had done contemporaneously in the natural sciences, that there existed a unifying set of laws which governed what he termed the ‘economy’. The economist’s job was simply their elucidation.
By ‘divine providence’, the invisible hand of the market would provide for all, if simply left to its own devices. The state simply needs to get out of the way and let this invisible cosmic force sort everything out. The problem is that the market-state dichotomy is false.
Very rarely is the existence of the market called into question – it is simply assumed upon the story of the emergence of money. In reality, historical evidence shows that the market is only ever the result of state activity, and entirely inextricable.
Whereas we like to think that the market and the state are two diametrically opposed entities of modern society, they are actually completely interdependent. The market cannot exist without the state, and the state, as we know it, requires the market. Proponents of the small-state market-led economy simply wish to move the government into the service of the profiteers. (The recent case of Iceland provides perhaps the best caveat to the truly deluded who think that the free market really can take care of distribution all by itself.)
This arises because of the fundamental nature of money. Money does not begin to circulate through trade, but has to be introduced by a governing body and is therefore always dependent upon that authority. As David Graeber argues, what is at the heart of human commodity exchange is debt. A coin is as much an IOU from the state as a commodity. In fact, the entire British economy still technically exists only because of a £1,200,000 loan a group of bankers made to King Henry II – if it were ever to be paid back, the sterling would technically vanish.
Economists might wish to create a fantasy world where there exists an abstract market force independent from the state, but it simply doesn’t exist. The reality is far more complex and cannot be isolated from the study of human nature, morality and politics. So successful has been the campaign to establish economics as a brute force of nature, however, that is has usurped politics to such an extent that politicians cannot even question the mechanisms of distribution in our society – for to do so undermines the integrity of the ‘market’.
Instead the political debate has come to be phrased entirely in terms of the most appropriate way to redistribute money. For the left it is taxes and handouts, for the right it is charity and philanthropy. Such sentiment was typified by New-Labour’s iconically nonchalant attitude to the ‘filthy rich’.
To my mind, both have their pitfalls and ultimately are always weighted in favour of the rich. The weighting is typified by examples such as the soft drink industry’s successful lobby in America pledging to fund a new hospital for child obesity in return for the Senate waiving a bill calling for the curtailment of potentially addictive sugar additives in their drinks.
Or, similarly, by the corporate sponsorship of Durham Universities Charities Kommittee by KPMG. For it is groups like KPMG that broker the greatest inequalities of the world, only to turn up as ingratiating philanthropists purporting to be saviours.
If KPMG wished to aid society, perhaps they might be better ceasing their operations in the 47 out of 60 tax havens in which they currently aid businesses in intricate legal tax avoidance schemes. But clearly it is a better investment to improve a public image with philanthropy than with ethical business practices.
If you accept that the market is simply a brute fact like gravity, as our political leaders seem to have done, then there are indeed few other options for the left or the right. However, the reality is very different, and there isn’t actually this imaginary force. Once this is challenged, the whole area of predistribution is opened up – asking who gets what in the first place. It is only here where real development can take place, where humanity may find true emancipation.
In its mildest form, and as I have no doubt how Labour will soon introduce it as, predistribution becomes merely a euphemism for regulation. In its most radical sense, it jettisons the idea that an imaginary force will distribute resources justly throughout society and recognizes that Smith’s magic hand is much like the Wizard of Oz, with a grinning George Soros behind the curtain.